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Renter Nation Is Getting More Crowded

It is the worst of times, it is the best of times – depending on whether you’re a landlord or a tenant.

As Bloomberg recently reported, the real median income of renters fell by 7.6% from 2007 to 2012. Meanwhile, the number of renters rose by roughly 11% from 2007 to 2011.1

In some big cities, the surge in rents has left wage growth in the dust. As Trulia economist Jed Kolko recently highlighted, rents in San Francisco, San Diego and Portland have risen roughly 10% in the past year, as job growth has ranged from 1.5% to 2%.2

At its most bleak, a legitimate affordability gap is taking place in these locales, with a recent Harvard study showing that 11.8 million renters with extremely low incomes are chasing 6.9 million affordable housing units.3

However, it’s also true that, regardless of income, American households have increasingly turned to the rental market for their housing. From 31% in 2004, the renter share of all US households climbed to 35% in 2012, bringing the total number to 43 million by early 2013.

It’s probably no surprise that the surge in renting also happened to coincide with the financial crisis. As the Harvard study highlights, the enormous wave of disclosures certainly displaced many homeowners, while the collateral economic upheaval generated high unemployment that strained household budgets and prevented would-be buyers from purchasing homes.

But another part of the constraint was emotional, the study found. The experience of the last few years highlighted the many risks of home ownership, including the potential loss of home value, the high costs of relocating, and the havoc caused by foreclosure.

In addition, that backdrop has shined a light on the benefits of renting, including the greater ease of moving, the ability to match housing with family budgets, and the freedom from the responsibility of home maintenance.

What’s more, there are indications that renting will continue to remain robust. A new paper by Kansas City Fed economist Jordan Rappaport has suggested that apartment renters are part of a new generational shift. Rappaport says classic suburban single-family home construction will level out as Baby Boomers retire, and more Americans move to multi-family buildings.4

This trend will not only boost demand for new apartments, says Rappaport, but for restaurants, city parks and high-quality public transit.”

For those who believe that this growth in the rental market may be more than just a turn in the economic cycle, but may be a trend of more to come, you may be interested in considering the portfolio of stocks that make up the Renter Nation motif. This motif is up 5.4% in the past month. The S&P 500 is down 3.3% in that same period.

In the last 12 months, this motif is up 1.3%; the S&P 500 has gained 19.3%.

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